Prosperity and Depression.pdf

Chap. 8Recent Di.scusJions on the TradeCyc/ethe multiplier, or of the marginal propensity to. consume, overtime. 1Such a dynamic theory is endogenolls in. character. The·determinantsatany moment of time cease to be simply assumed. Today'sdeterminant data are yesterday's variables. (and are thusexplained), and to-day's variables .become to-morrow's .data.The successive situations (short-run equilibria) are interconnectedlike the links of a chain. Hence, in ordet to explain a movement(cyclical or otherwise), we need not assume a correspondingchange in the data; I we need be given· only the first position oran initial change in data, at the beginning. of the process.The skeleton ofMr. KEYNES' theory, as it is representedpreciselyin diagrammatic form by Professor LANGE, 3 is essentially static.There are no time-lags, and all the data and variables relate tothe same point of time. There are, however, .many allusionsto dynamic relationships in incidental .. remarks and illustrativeobservations which are thrown out in great number all over thebook. Moreover, dynamic theories can be grafted upon (or, as itismore correct to say, may be expressed in terms of)· Mr. KEYNES'system. This has been done, for example, by Mr.H.ARRoD, ~who introduoed the dynamic acceleration principle (and seemsto interpret the multiplier dynamically). Another example isMr. M. KALECKI'S theory,5 which introduces. a lag betweeninvestment.decisions as determined by the current situation andthe actual volume, of investment.e1 Professor Tinbergen, loco cit., has enumerated many different dynamicrelationships which have been used at one time or another in businesscycletheory.. I This was the definition of an endogenous theory. Ct. ChapterI, page 9... Economica, February 1938.. Mr. Keynes has accepted this expositionas correct. See also J. E. Meade: " A Simplified Model of Mr. Keynes'System ", in the Review of Economic Studies, Vol. IV, 1936/37, page 98.4 The. T1'ade Cycle, Oxford, 1936.5 HA Theory of the Business Cycle ", in. Review of EcOftomic. Studies,Vol. IV, February 1937, pages 7i et seq., reprinted in Essays i.,. the TMoryof Economic Fluctuations, London, 1939.G. These theories, although inspired. by Mr. Keynes' G,fJe,al Theory,can be and have been expressed in a more classical terminology.